Things Financial Advisors Don’t Tell You – The importance of prioritizing your goals

Things Financial Advisors Don’t Tell You – The importance of prioritizing your goals

Things Financial Advisors Don't Tell You

 The importance of prioritizing your goals

Recently, we decided to share some non-financial lessons we’ve learned in a series of letters called, “Things Most Advisors Don’t Tell You.” You see, there are certain habits and behaviors that, while not directly related to finance, can spell the difference between reaching your goals or not. But in our experience, people rarely hear about these things from their financial advisor.

That’s unfortunate, because applying these lessons makes working towards your goals both easier and more rewarding. So, without further ado, here is:

Things Most Advisors Don’t Tell You #3: The importance of prioritization

Once there was a farmer who woke up early to milk his cows. On the way to the barn, he noticed his fence was broken. So, he went to his shed to get his tools, only to find he was out of nails. On the way to town to buy more, the fuel light in his truck came on. As he filled up at the gas station, he noticed a shoe store across the street advertising a special on men’s work boots. As his own were starting to wear down, he went to buy a pair. Then, he went to the hardware store. Once inside, he remembered his tractor needed a tune-up, so he bought the equipment he needed and drove home. Upon arriving, the sound of clucking hens reminded him to collect their eggs. After finishing that, he turned his attention to his tractor. By the time he finished, the afternoon was making way for the evening. “Still time to fix the fence,” he thought, when he realized he’d never actually bought the nails. So, back to town he went to get more.

The stars were out by the time he finally fixed the fence. Exhausted, the farmer went inside and kicked off his boots. But just as he sat down, his wife asked him why they had no fresh milk.

Groaning, the farmer rubbed his eyes and wondered why there was never enough time in the day to do what needed doing.

***

This is an extreme example – and obviously no self-respecting farmer would work like this – but it illustrates an important point. Too often, many people start the day – or the month, the year, or even an entire phase of their life – with a goal in mind, only to be distracted and side-tracked.

The result? We fail to achieve what we originally set out to do. We fail to realize our most cherished dreams.

There are two main culprits behind this.
1. We don’t plan ahead.
In the story above, the farmer probably would have felt a lot better about his day if he’d laid out a plan. But instead, he started going around in circles, always making decisions based on what he saw right in front of him. Many people to do this with their finances, too. For instance, maybe you decide it’s time to pay off your debt. But then you notice the roof needs repaired, so you pay for that. Then you get frustrated because your personal computer is old and slow, so you buy a new one. By that time, your money is running low, so you decide to just wait until your tax refund comes. But when the refund comes, you’re burned out from work, so you go on vacation instead. Meanwhile, your debt just grows and grows. When we plan ahead, we can determine what we want to accomplish, what steps it will take to get there, and when and in what order we execute those steps. Done correctly, this ensures we do more of what we actually want to do.

2. We don’t prioritize.
This is the culprit many advisors don’t talk about.
Let’s take the farmer again. Obviously, everything he did needed to get done – but some things were probably more important than others. The fence, maybe, could have waited. Buying new boots could have waited. Or perhaps he could have made a list of everything he could do without going into town, and a list of everything that required going into town. Then, he could have prioritized which tasks to do first, and in doing so, gotten a lot more done with a lot less effort.

Taking time to prioritize our goals, needs, and short-term wants has a similar effect. It ensures that we allocate our time and our money as effectively as possible. For instance, some people may find that investing their money for retirement is a lower priority than starting a rainy-day fund. Others, meanwhile, may get the most bang for their buck if they prioritize minimizing their taxes over, say, earning more money.

Life is hectic, and it seems like we always have a million-and-one things to do. Thankfully, the solution doesn’t always require beating our heads against the wall because we’re trying to “work harder.” Sometimes, the solution is to work smarter – by planning and prioritizing how we spend our time and money.

Next time, we’ll move on to a topic you’ll rarely hear a financial advisor talk about: Achieving financial harmony in the home. In the meantime, have a great month!

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The Decade in Review

The Decade in Review

The Decade in Review

Reviewing the 2010s and what we can learn from the decade that was.
Let's Talk!Receive A Free, No-Obligation Portfolio Review

2010-2019: The Decade in Review

Every January, we send our clients a letter titled The Year in Review, where together we look back at the year that was. What were the highlights? What were the “lowlights”? What did we learn?

But this January doesn’t just mark a new year. It marks the beginning of a new decade. (Unless you are a strict observer of the Gregorian calendar system, in which case the next decade begins in 2021. But we digress.) So, for this letter, we’re going to look back at what shaped the markets in the 2010s – and what lessons we should take with us into the ‘20s.

2010-11: Aftershocks of the Great Recession

The best way to see how much can change in a decade is to remember how things were at the end of the last one. In 2010, we were coming off the worst decade for stocks since the 1930s. The Great Recession had devastated the retirement savings of millions of people. Many of the world’s most famous financial institutions had collapsed. And the national unemployment rate was near 10%.1

It was a scary and uncertain time. Many investors had fled the markets entirely by 2010, some for good. As a result, they missed a remarkable recovery that was just around the corner. Not only that, they missed the longest bull market in history.

In hindsight, it might seem obvious that there was nowhere to go but up. But just as the start of a recession is very hard to see coming, the ending can be equally hard to wait for. People can be forgiven for thinking the worst was still to come, because in 2010 and 2011, there were still a lot of ominous headlines to deal with. Remember any of these terms?

Sequestration ● U.S. Debt Ceiling ● European Debt Crisis
● Bailouts ● Austerity ● The Fiscal Cliff

For the first few years, fear abounded as to whether the global economy would be able to recover at all. Nation after nation dealt with spiraling debt that couldn’t be paid off. Remember how often Greece used to be in the news? Some analysts speculated about the possibility of a second recession. 2011 was an especially tenuous year for the stock market, especially when the United States’ credit rating was downgraded for the first time in history.

2012-14: The Federal Reserve intervenes

 During this time, however, the world’s largest central banks were working behind the scenes to keep the recovery going. In the United States, for example, the Federal Reserve embarked upon a massive bond-buying program, to the tune of $85 billion per month. This accomplished two things. First, it flooded the money supply and kept interest rates historically low. Lower interest rates made borrowing less costly, which meant businesses and individuals could borrow and spend more, thereby pumping more money into the economy as a whole. This, of course, equaled growth. Slow growth, but growth nonetheless.

The second thing the Fed’s bond-buying did was drive more investors into stocks. Low interest rates often lead to lower returns for fixed income investments, so it was into the higher risk, higher reward stock market that investors went. All this had been going on for years, but the results were only then becoming apparent. So, it came almost as a surprise when the markets reached new highs, even though the economy still seemed to be licking its wounds. It was in mid-2013 that the Dow hit 15,000 for the first time, rising to 16,000 by the end of the year, and then 17,000 the year after.

2015-16: Waiting for the other shoe to fall

But that didn’t mean the markets were immune to volatility. Despite the economic recovery, many experts spent the decade in near-constant fear of another bear market. Every wobble, every market correction, was watched with fearful anticipation. It was like standing next to someone’s hospital bed, thinking every next breath will be their last. Some of this was probably a form of post-traumatic stress caused by the Great Recession. The rest came from the spasms of an ever-changing world.

Oil prices plunged dramatically around this time, hurting both oil-producing nations as well as the energy industry. China’s stock market crashed. The Greek debt crisis reared its ugly head again, prompting fears that “financial contagion” would spread and create another global recession. And then came Brexit. The news that the United Kingdom would leave the European Union sent shockwaves around the world. And here at home, one of the most bitterly contested presidential elections in U.S. history had both sides of the political aisle forecasting economic ruin if the other side won.

But despite the dire predictions, these developments only slowed the recovery’s march rather than derailing it completely. In fact, by July of 2016, the Dow once again hit new heights.

2017-19: The longest bull market

While most of the decade had seen slow-but-steady growth, the horse started picking up speed as it neared the finish line, buoyed by tax cuts, increased government spending, and corporate earnings. Nowhere was this truer than with the Dow. Comprised of thirty of the largest publicly-traded companies, the Dow hit 20,000 for the first time early in 2017 – and closed well above 28,000 on December 31, 2019.2

Exactly ten years before, the number was only 10,428. That’s an increase of over 170% – the culmination of the longest bull market in history.

Of course, it wasn’t all smooth sailing. The trade war with China is an ever-present concern, with rising tariffs often leading to brief, but dramatic downswings in the market. 2018 was actually a down year for the S&P 500, the only one of the decade. And as the 2010s drew to a close, many economists warned of a slowing economy – with maybe even a mild recession in store.

Despite these warnings, investors did what they had done for most of the decade: Act startled, and then head right back into the markets. Some pundits call it a market “melt-up” instead of the usual meltdown.

What have we learned?

So. A remarkable decade filled with twists and turns. But what did we learn?

When we looked back at the last ten years, one thing that struck us was how interconnected the world has become. So many of the storylines that drove the markets originated far beyond our shores. We truly live in a global economy. We invest in other countries, buy products in other countries, loan money to other countries (or apply for loans, as the case may be) and trade with other countries. We might be separated by the world’s biggest ponds, but the ripples near one shore are always felt near the other.

That means two things. One, for advisors like us, it means there’s more than ever to keep track of. But two, it means we should react less and less to the headlines of the day – or to each individual ripple. A butterfly might flap its wings in Beijing and cause a hurricane in Topeka, as the saying goes, but there are butterflies flapping their wings everywhere. That’s one reason why we saw many storms but fewer hurricanes in the 2010s.

Another thing we learned?  Sometimes, most times, slow and steady really does win the race. We were all taught the truth of this as children when we learned the story of the tortoise and the hare. The past decade proved it. Everyone loves growth that comes fast and hot. But when something burns fast and hot, it tends to burn out faster, too. One reason we never saw the recession so many people feared is because the economy recovered as slowly as it did. It’s a lesson we can apply to our own financial decisions. While it’s always tempting to chase after windfalls and jackpots, it’s so much smarter to prioritize steady progress over short-term whims. The race to your goals is a marathon, not a sprint.

A third thing we learned is how often things don’t go as predicted. In 2010 and 2011, many experts predicted a gloomy decade for the stock markets – and they had good reason to think so! But it didn’t happen. When, say, Obamacare became the law of the land, many experts predicted economic disaster. As of this writing, it hasn’t happened. When Brexit became a reality, many experts predicted a global catastrophe. As of this writing, it hasn’t happened. When President Trump was elected, many experts predicted a market meltdown. As of this writing, it hasn’t happened. We all have our opinions on whether events like these were good or bad, of course. But it’s a good thing we didn’t base our investment decisions on any expert’s predictions!

Because if there’s one thing we learned this decade, is that a prediction is like a person’s appendix – pretty much useless.

 2020 and beyond

With that in mind, we won’t make any predictions for the coming decade. If history is correct – and it always is – another market correction, another bear market, another recession will come eventually. Whether it’s this year, or next, or the one after that, we can’t say. What’s more important is that we remember this:  It’s when we fly that we should have the healthiest respect for gravity. But it’s when we’re on the ground that we should raise our eyes to the skies.

Investing is like trying to find our way in the dark – and our strategy is our North Star. It’s so much more valuable than any prediction! We may bump into the occasional obstacle. Sometimes, we may even trip. But if we hold to that star, we will keep moving forward in the direction we want to go.

We will make this decade whatever we want it to be.

Happy New Year!  Our team can’t wait to spend the next decade with you.

1 “State Unemployment rates in 2010,” U.S. Bureau of Labor Statistics, https://www.bls.gov/opub/ted/2011/ted_20110301.htm
2 “Stocks close out at highest end-of-year gains since 2013,” Chicago Sun Times, https://chicago.suntimes.com/business/2019/12/31/21045017/us-stock-market-year-end-close-out-2019

Are you looking for a financial advisor?  Do you feel confident about your retirement account decisions? Business owner looking for a company 401K plan administrator? Or an athlete or high net worth individual needing long term financial planning advice? Research Financial Strategies can help. We are here to help you design a financial strategy that is molded specifically for you. One that changes as your life changes. Financial investments to help you live worry-free now and in the future.

In our experience, we’ve found that the most successful solutions begin by asking the right questions.
We gain a broader perspective of your goals and the future you wish to create

Today is a Good Day to Start Your Financial Plan

1. We Listen

Our focus is on your life and priorities. Not just your portfolio. That’s why we start by listening and learning about you. Each individual client has different needs and concerns that need to be addressed. We carefully listen to those concerns. We will gain important information that will help us to best serve our clients and help protect their financial futures.

2. Plan

Together we will work to implement the plan that was developed for you. We will keep you constantly updated on what is happening and evolve our plan as your life happens.
Above all, our advisors want to help you meet your goals, even if that means helping you find out what your goals are.

3. We Take Care Of The Rest

We are here for you whenever you need us. Call your Research Financial Strategies Financial Advisor at any time, for any reason. You will always have access to the guidance you need whether it is high tech, high touch or a combination of the two. Your personal Financial Advisor will help you figure out how to pay for life’s great adventures!

 

Ready to Make a Change?

With an “education first” approach, Research Financial Strategies ensures that our clients understand how their money is being invested, and we guide the development of financial plans that help them achieve their goals for personal wealth and retirement security.

How Can We Help?

Annuities, Potomac, Annuity, Bethesda,  Annuity Advisor, Rockville, 

Market Commentary January 13, 2020

Market Commentary January 13, 2020

Weekly Financial Market Commentary

January 13, 2020

Our Mission Is To Create And Preserve Client Wealth

It was a nerve-wracking week.
Iran fired 22 ballistic missiles at the Ain Al Asad air base near western Iraq and a second base in northern Iraq following last week’s U.S. drone strike that killed a top Iranian military commander. Newsweek reported the bases suffered minimal damage and there were no casualties from the attack. However, Iran mistakenly downed a commercial airliner, killing all on board, reported CBS News.

U.S. stock prices faltered after the initial attack, but recovered quickly when both sides, “…step[ped] back from further violent escalation…,” reported Barron’s.

U.S. Treasury bond yields dropped sharply last week before rebounding. Financial Times reported the possibility of war caused global investors to seek out investments perceived to be safe havens. Record amounts of cash moved into bond investments, particularly U.S. Treasuries, during the week ended last Wednesday.

Australia was ravaged by wildfires. Citing the Insurance Council of Australia, NPR reported, “The wildfires have killed more than two dozen people, more than a billion animals. They’ve destroyed more than 1,800 houses, an untold number of commercial buildings and thousands of acres of prime farmland…” At the end of last week, 130 fires were burning and 50 were uncontained, according to the BBC. The damage could mark the end Australia’s nearly 30-year economic expansion.

Puerto Rico was shaken by a 5.9 magnitude earthquake. The quake followed a magnitude 6.4 quake that hit the same region four days earlier, reported the Associated Press. Since December 28, the region has been hit by, “…more than 1,280 earthquakes, of which more than 100 were felt and more than 70 were of magnitude 3.5 or greater.”

On Friday, a tepid U.S. employment report cooled U.S. stock returns. However, Barron’s reported all three major U.S. indices closed, “within a half-percentage point of their highest-ever closes.”

More milestones of the past decade. As we mentioned last week, the period from 2010 through 2020 was filled with memorable events. We covered a few in last week’s commentary. Here are some more:

  • Gangnam Style. In 2012, Korean pop music went viral with Gangnam Style. Its online video became the first to be viewed one billion times.
  • Total solar eclipse. For the first time since June 1918, a solar eclipse was visible across the entire United States in August 2017. We won’t have to wait so long for the next one. Good Housekeeping reported it will happen in 2024.
  • Economic confidence increased. In January 2010, Gallup reported just 9 percent of Americans said it was a good time to find a quality job. By the end of 2019, the number had increased to 66 percent.
  • Bionic men, women, and children. Bionic people are no longer limited to the realm of science fiction. Prosthetics “…are morphing into mind-controlled extensions of the human body that let their wearers feel what they’re touching,” reported CNET.

 Trillion-dollar stock valuations. Late in the decade, three companies in the technology sector saw their stock valuations reach thirteen digits. Not all have remained at that level.

  • Global middle class expansion. At the end of last year, about one-half of the world belonged to the middle class, according to the World Data Lab. Middle class means different things in different countries. Middle class income ranged from $3,872 a year to $38,720 a year.

 The U.S. wealth gap. The St. Louis Federal Reserve explained the gap like this: The ‘income pie’ in the United States grew from $7 trillion in 1989 to almost $12.9 trillion in 2016. The share of pie going to the top 10 percent of earners increased from 42 percent to 50 percent. Lower earners’ shares shrank.

Weekly Focus – Think About It
“After many months of reflection and internal discussions, we have chosen to make a transition this year in starting to carve out a progressive new role within this institution. We intend to step back as ‘senior’ members of the Royal Family and work to become financially independent, while continuing to fully support Her Majesty The Queen. It is with your encouragement, particularly over the last few years, that we feel prepared to make this adjustment. We now plan to balance our time between the United Kingdom and North America, continuing to honor our duty to The Queen, the Commonwealth, and our patronages. This geographic balance will enable us to raise our son with an appreciation for the royal tradition into which he was born, while also providing our family with the space to focus on the next chapter, including the launch of our new charitable entity. We look forward to sharing the full details of this exciting next step in due course, as we continue to collaborate with Her Majesty The Queen, The Prince of Wales, The Duke of Cambridge, and all relevant parties. Until then, please accept our deepest thanks for your continued support.”
–The Duke and Duchess of Sussex

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

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* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.newsweek.com/military-aircraft-runway-among-damage-iraqi-base-struck-iran-missiles-1481129
https://www.cbsnews.com/live-updates/iran-plane-military-unintentionally-shot-down-jetliner-2020-01-11/
https://www.barrons.com/articles/the-dow-jones-industrial-average-rises-189-points-for-the-week-despite-mideast-tensions-51578705947?mod=hp_DAY_4 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-13-20_Barrons-The_Dow_Rises_189_Points_for_the_Week_Despite_Mideast_Tensions-Footnote_3.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (Overview chart) (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-13-20_Barrons-Overview_Market_Data-Footnote_4.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (Bonds chart) (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-13-20_Barrons-Bonds_Market_Data-Footnote_5.pdf)
https://www.ft.com/content/3eaf8fe8-3334-11ea-9703-eea0cae3f0de (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-13-20_FinancialTimes-Bond_Funds_had_Record_Inflow_as_Iran_Crisis_Spiralled-Footnote_6.pdf)
https://www.npr.org/2020/01/12/795235653/australias-massive-fires-threaten-to-slow-decades-long-economic-boom
https://www.bbc.com/news/world-australia-50951043
https://apnews.com/fd6b234395379a876bddc74e1b882d43
https://en.wikipedia.org/wiki/Gangnam_Style
https://www.goodhousekeeping.com/life/g29729623/things-you-forgot-happened-this-decade-2010-to-2019/?slide=25
https://news.gallup.com/opinion/gallup/273377/gallup-decade-review-2010-2019.aspx
https://www.cnet.com/news/prosthetic-hands-get-a-sense-of-touch/
https://www.barrons.com/articles/amazon-stock-parts-1-trillion-market-cap-51570474138
https://worlddata.io/blog/emerging-trends-in-the-global-middle-class-a-private-conversation-with-dr-homi-kharas
https://www.stlouisfed.org/open-vault/2019/august/wealth-inequality-in-america-facts-figures
https://www.instagram.com/p/B7EaGS_Jpb9/?hl=en (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-13-20_Instagram_Post-Duke_and_Duchess_of_Sussex_Announcement-Footnote_17.pdf)

Investment advice offered through Research Financial Strategies, a registered investment advisor.

Breaking down the SECURE Act

Breaking down the SECURE Act

The SECURE Act

What You Need To Know About The SECURE Act

In December, Congress passed a new bill called the Setting Every Community Up for Retirement Enhancement Act, aka the SECURE Act. Besides proving that Congress can make an acronym out of almost anything, the bill – which goes into effect on January 1, 20201 – makes some important changes to various rules on saving for retirement. Many of these changes are positive, in the sense that they should make it easier for people to save more for longer. However, the SECURE Act also eliminates a popular estate planning tactic that many Americans have used to help their family after they pass away.

To help you understand the SECURE Act and how it may affect your finances, I’ve written this special letter. There’s a lot to unpack here, so please take a few minutes to read about these changes. Most are fairly simple, actually, but if you have any questions or concerns, please let me know. Remember that my team and I are always available to help provide financial clarity. In my opinion, that’s one of the most important things any person can have.

In the meantime, I wish you and yours a Happy New Year! I hope the year 2020 is a great one!

Important Provisions of the SECURE Act

Before we dive in, understand, that the SECURE Act is over 20,000 words long. (And in fact, the Senate had to tuck it away in a much, much larger appropriations bill to pass it.) That means there isn’t room to cover every provision of the new law, and many won’t apply to you anyway. So, what follows is a brief overview of the major changes that could affect your finances.

Are you ready? Then take a deep breath as we go over…

CHANGES TO THE IRA “STRETCHPROVISIONS2
For years, one of the most popular estate planning strategies was the use of Stretch IRAs. When a parent or grandparent dies, they can leave their IRA to their children, grandchildren, or other heirs. Under the old rules, these beneficiaries could take distributions from their inherited IRA based on their official life expectancy. This allowed them to “stretch out” the value of the IRA – and the tax advantages that come with it – for a longer period. For example, if a 50-year old with a life expectancy of 85 inherited her mother’s IRA, she could stretch out her distributions over the next 35 years.

Now, non-spousal beneficiaries who inherit an IRA in 2020 or beyond can no longer do this. Instead, inherited IRAs fall under the new “10-Year Rule”. This means that all the money in the IRA must be withdrawn by the end of the 10th year following the year of inheritance. At that point, the beneficiary must pay taxes on that money.

Note that the rule does not require the beneficiary to take withdrawals during the 10-year period if he or she doesn’t want to. That’s important! Deciding when to take withdrawals should be based on several factors, including the beneficiary’s current financial situation, how close they are to retirement, and when they plan on taking Social Security benefits.

Something else to note: The new 10-Year Rule does not apply to spouses, disabled and chronically ill beneficiaries, and minors. For the last group, the exception lasts until the child reaches the “age of majority”, which is 18 to 21 depending on the state. Once they reach that age, the 10-Year Rule kicks in.

Make no mistake: This new rule will have a profound impact on beneficiaries, especially those who are younger and could otherwise have waited decades before making withdrawals (and paying taxes on those withdrawals). For this reason, if you are either planning to bequeath an IRA to your beneficiaries, or are expecting to inherit one yourself, consider scheduling a consultation with me about your options. I want to do everything I can to help you and your heirs maximize your retirement savings while minimizing your tax burden.

CHANGES TO REQUIRED MINIMUM DISTRIBUTIONS FOR IRAS2
Speaking of maximizing your retirement savings…
Another change the bill makes is to lengthen the time people can contribute to their IRAs. Currently, retirees can only contribute to an IRA up to age 70½. Once they hit this milestone, they are required to begin making withdrawals. (These are called required minimum distributions, or RMDs.) Under the SECURE Act, that age would increase to 72. That means retirees have an additional 18 months to benefit from the tax advantages that come with IRAs. 

Note: This change only applies to those who turn 70½ in 2020 or later. Even people who turned 70½ in December of 2019 would still have to take an RMD for 2020.

That’s it for this provision. See? I told you some of the changes were simple.

OTHER IRA CHANGES2
Here’s another simple change. Under the old rules, contributions to a traditional IRA were prohibited once a person reached the year they turned 70½. No longer. Now, anyone, even those older than 70½, can keep contributing to their IRA so long as they continue to work.

Here’s an example. Jane turns 70½ in 2020 but decides she wants to continue working. So rather than withdraw money from her IRA, she decides to make a tax-deductible contribution to it instead. While Jane must still take RMDs once she turns 72, she decides to keep making contributions every year until she actually retires, as the math still works in her favor.

Obviously, this change only benefits those who continue working into their seventies. And even then, it may not always make sense to keep contributing to your IRA. But it’s always nice to have options!

Another change is for new parents. Under current law, a person must be 59½ years old to make withdrawals from a traditional IRA. If they withdraw money earlier than that, they must pay a penalty of 10% on the amount you took out. There are a few exceptions, such as if they need the money to pay large medical bills, buy a home, or manage a disability. But, generally speaking, the government wants the money inside a retirement account to be saved for retirement.

Under the SECURE Act, new parents can now withdraw funds penalty-free to help cover birth and adoption expenses. This is especially helpful for younger parents who have high deductible insurance plans. There is a $5,000 cap on withdrawals, though, and they need to be made within one year of the birth or adoption.

CHANGES TO 401(k)s2
The SECURE Act brings many changes to 401(k)s, but most are for businesses to worry about. There is one change you should know about, though, and it involves annuities.

A type of insurance product, many annuities offer a monthly stream of income, sometimes for life. This can make them attractive for retirees. Historically, few 401(k)s contained annuities. The SECURE Act makes it easier for employers to offer this as an option.

The reason I mention this is because you should get a second opinion before putting your money in an annuity. Choosing the right annuity can be difficult, as there are many types and features, and some annuities come with high costs. So, while an annuity may be right for some people, that doesn’t necessarily mean it’s right for you.

If you have questions about this, let’s chat! I’d be happy to provide you with a second opinion.

CHANGES 529 PLANS2
For many Americans, paying off student loans is a difficult financial burden. To help pay for their loved ones’ higher education, some parents and grandparents use 529 plans. Any funds invested in a 529 plan can be used to help pay for college expenses, like room and board or tuition. The best part is that the funds are exempt from federal taxes, and often state taxes, too, so long as they’re used solely for education expenses.

Under the SECURE Act, parents with 529 plans can make a tax-free withdrawal of up to $10,000 to help pay off their child’s student loans. This $10,000 limit is per person, not per plan, which means another $10,000 can be withdrawn to help pay the student debt for each of a 529 plan beneficiary’s siblings.

If you have invested in a 529 plan for a child or grandchild with lots of student debt to pay off, let’s talk to see if it makes sense to take advantage of this.

CONCLUSION
As you can see, the SECURE Act is loaded with changes and provisions for those saving for retirement. So, again, if you have any questions or concerns, please don’t hesitate to contact me for a free consultation!

In the meantime, remember that I’m here to help you work toward your financial goals. Please let me know if there’s ever anything I can do – in 2020 and beyond.

Happy New Year!

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Sources
1 Anne Tergesen, “Congress Passes Sweeping Overhaul of Retirement System,” The Wall Street Journal, December 19, 2019. https://www.wsj.com/articles/senate-spending-bill-includes-significant-changes-to-u-s-retirement-system-11576780736
2 Text of “SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT” (page 1532), Senate Appropriations Committee, December 16, 2019. https://www.appropriations.senate.gov/imo/media/doc/H1865PLT_44.PDF

Market Commentary January 13, 2020

Market Commentary – January 6, 2020

Weekly Financial Market Commentary

January 6, 2020

Our Mission Is To Create And Preserve Client Wealth

About face!
2019 was a remarkable year for investors with many asset classes delivering positive performance. Both the Standard & Poor’s 500 Index, a gauge of U.S. stock market performance, and the Dow Jones Global (ex U.S.) Index delivered double-digit increases (see the below table). Bonds and gold rallied, too, delivering positive returns for the year.

Possibly the most important factor contributing to asset performance in 2019 was an ‘about face’ by the United States Federal Reserve. Axios reported:  “The Fed’s 180-degree turn was the story of 2019, asset managers and market analysts say…Chairman Jerome Powell and the U.S. central bank went from raising interest rates for a fourth time at the close of 2018 and giving market watchers the explicit expectation this would continue in 2019, to doing the opposite. The Fed cut rates thrice and even began re-padding its balance sheet in the last quarter of the year, bringing it back above $4 trillion.”

The Fed’s policy decision gave investment markets a boost, however, it did little to quell investors’ worries about potential recession and the impact of the U.S.-China trade war, reported The Wall Street Journal. As a result, investors moved money from U.S. stock markets into bonds and other investments they perceived to be safer throughout the year.

During the fourth quarter of 2019, U.S. markets delivered positive returns despite uncertainty about the strength of the U.S. economy created by inconsistent economic data. For example, the last jobs report of the year indicated unemployment remained near a 50-year low. Yet, in 2019, workers experienced the highest number of layoffs in a decade.

Many layoffs during the year were the result of corporate bankruptcies, especially in the retail sector. Investors who took time to evaluate the juxtaposition of unemployment levels and layoffs may have recognized disruptions in the retail sector has potential to create opportunities for investors.

A closely watched indicator during 2019 was manufacturing. In December, Fox News reported, “The ISM Manufacturing Index fell for the fifth month in a row to 47.2 in December, down from November’s reading of 48.1. That’s the weakest reading since June 2009, when it hit 46.3, and well below the 49 reading that economists surveyed by Reuters expected.”

One of the reasons for weakness in manufacturing is the U.S.-China trade war. Late in the fourth quarter, concerns about trade subsided after the announcement of a phase one trade deal. The agreement is scheduled to be signed on January 15, 2020.

Continued progress in resolving the trade war could help boost economic growth in the United States. At the end of 2019, United States gross domestic product, the value of all goods and services produced in the country, was expected to remain slow and steady during 2020. However, forecasters at the Federal Reserve Bank of Philadelphia expected the economies of nine states to contract during the first six months of the new year.

From a geopolitical perspective, the 2020s are beginning just like the last decade did, with all eyes on Iran.

In 2009 and 2010, the Iranian Green Revolution captured the world’s attention as social media provided insight to post-election turbulence and unrest in Iran. Last week, the first of the new decade, all eyes were again on the Middle East as tensions between the United States and Iran flared after the death of a top Iranian military leader targeted by the United States.

After rallying on the first day of the new decade, some major U.S. stock markets declined on news of heightened tensions in the Middle East and concerns about the potential consequences, such as the disruption of oil supplies.

What a decade! While some have called the 2010s a ‘lost decade’ because there was little economic growth, we disagree with the assessment. The decade was filled with remarkable events in politics, sports, science, pop culture, and other areas of interest. Here are a few memorable events from the past decade:

  • NASA’s Voyager 1 probe left the solar system. Launched in 1977 to explore planets including Jupiter, Saturn, Uranus, and Neptune, the probe left our solar system in 2013. It will continue to send data until 2025.
  • The Patient Protection and Affordable Care Act was signed into law. The controversial law, which Encyclopedia Britannica reported, “required most individuals to secure health insurance or pay fines, made coverage easier and less costly to obtain, cracked down on abusive insurance practices, and attempted to rein in the rising costs of health care,” remains under challenge in American courts.
  • eSports became an industry. To the delight of people who would prefer to spend their time gaming, online games became a recognized form of sports competition, complete with news coverage and multimillion-dollar prize money.
  • Civil and social movements changed thinking. There were pro-democracy protests in the Middle East (Arab Spring), and social movements in the United States (Occupy, Black Lives Matter, Blue Lives Matter, and MeToo, among others). MIT explained, “…a successful movement can change how we think and talk about key social issues.”
  • The Higgs Boson particle was found. Any fan of the television show, The Big Bang Theory, will know exactly how much this meant to Sheldon Cooper. The television show’s popularity was also a phenomenon of the last decade.
  • Carli Lloyd scored the fastest hat trick in World Cup soccer. Carli Lloyd scored a hat trick – three goals – in 13 minutes for the U.S. women’s national team during the World Cup final against Japan in 2015. She also played on the team that won the 2019 Women’s World Cup.
  • Hurricanes, earthquakes, and storms wrought destruction. Countries around the world were pummeled by storms during the decade. Hurricanes and tropical storms like Irene, Sandy, Harvey, Irma, Michael, Dorian, and Maria did significant damage in the United States and its territories. One of the most memorable was the Great Japanese earthquake and tsunami that preceded the Fukushima Daiichi nuclear accident.
  • The Chicago Cubs broke the curse. Advised by their manager to go out there and, “Try not to suck,” the Cubs won the World Series for the first time since 1908.
  • Entertainment took a turn toward streaming. Deadline Hollywood reported, “It is impossible to find a corner of the industry that has not been reshaped by streaming, from the pay TV ecosystem and movie exhibition to labor negotiations and talent deals.”

 The 2010s provided disruptions and delights. Let’s hope the events of the coming decade will make the world a better place.

Weekly Focus – Think About It
“It’s the action, not the fruit of the action, that’s important. You have to do the right thing. It may not be in your power, may not be in your time, that there’ll be any fruit. But, that doesn’t mean you stop doing the right thing. You may never know what results come from your action. But, if you do nothing, there will be no result.”
–Mahatma Gandhi, Lawyer, politician, social activist

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

Treasury Note is simply the yield at the close of the day on each of the historical time periods. 
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.axios.com/jerome-powell-interest-rates-2019-73b78462-04f8-4f77-8aff-eee25f35f803.html
https://www.wsj.com/articles/investors-bail-on-stock-market-rally-fleeing-funds-at-record-pace-11575801002 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-06-20_WSJ-Investors_Bail_on_Stock_Market_Rally_Fleeing_Funds_at_Record_Pace-Footnote_2.pdf)
https://www.philadelphiafed.org/-/media/research-and-data/regional-economy/indexes/leading/2019/leadingindexes1119.pdf?la=en
https://www.foxbusiness.com/markets/us-manufacturing-sector-contracts-for-sixth-month-in-a-row
https://www.lawfareblog.com/us-and-china-strike-phase-one-trade-agreement-washington-steps-efforts-block-chinese-tech-amidst
https://www.axios.com/growing-economic-divide-between-two-americas-d1d94b84-f1fb-4a37-9444-76aab1ad8ad9.html
https://en.wikipedia.org/wiki/Twitter_Revolution
https://www.reuters.com/article/us-iraq-security-soleimani-insight/inside-the-plot-by-irans-soleimani-to-attack-us-forces-in-iraq-idUSKBN1Z301Z
https://www.barrons.com/articles/dow-jones-industrial-average-finds-reason-to-drop-after-u-s-air-strike-on-iran-51578105152?mod=hp_DAY_6 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/01-06-20_Barrons-The_Dow_was_Waiting_for_a_Reason_to_Drop_The_US_Air_Strike_Supplied_It-Footnote_9.pdf)
https://www.bbc.com/news/business-14536235
https://www.livescience.com/biggest-science-of-the-decade.html
https://www.britannica.com/topic/Patient-Protection-and-Affordable-Care-Act
https://www.espn.com/esports/story/_/id/28240009/2019-espn-esports-awards
https://www.history.com/topics/middle-east/arab-spring
https://civic.mit.edu/2019/10/02/whose-deaths-matter-new-research-on-black-lives-matter-and-media-attention/
https://www.vulture.com/2014/05/big-bang-theory-ratings.html
https://thesefootballtimes.co/2018/11/26/carli-lloyd-and-the-unforgettable-13-minute-world-cup-final-hat-trick/
https://time.com/5620124/team-usa-womens-world-cup-final/
https://www.usatoday.com/story/news/nation/2019/12/02/hurricanes-2010-recap-dorian-irma-looking-ahead-2020/2586653001/
https://www.world-nuclear.org/information-library/safety-and-security/safety-of-plants/fukushima-accident.aspx
https://www.si.com/mlb/2016/11/02/joe-maddon-chicago-cubs-world-series-maddonisms-best-quotes
https://deadline.com/2019/12/streaming-hollywood-disruptor-decade-netflix-amazon-disney-2020-outlook-1202817648/
https://www.goodreads.com/quotes/tag/make-a-difference

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